INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR

ITA No. 652/JP/2013 Assessment Year : 2011-12
Deputy Commissioner of Income Tax (TDS) (Appellant) vs M/s Samarth Lifestyle retailing Pvt. Ltd (Respondent)
Date of Order : 16/12/2015

ORDER

PER: T.R. MEENA, A.M.
This is an appeal filed by the revenue against the order dated 17/04/2013 passed by the learned CIT(A)-III, Jaipur for A.Y. 2011-12. The sole ground of appeal is as under:-

“1 The ld CIT(A), Jaipur has erred in law and on facts holding that the assessee is not liable to make TDS U/s 194H on the credit and swap charges paid to the bankers”

2. The sole ground of the appeal is against, not liable to make TDS I/s 194H on the credit and swap charges paid to the bankers. The ld DCIT, (TDS), Jaipur had verified the assessee’s case and found that the assessee had deducted TDS amounting to Rs. 70,65,622/- but had not deposited it in government exchequer. The TDS amount was pertaining to F.Y. 2011-12. The assessee after knowing the consequences of non deposition of TDS, deposited the amount by various challans in F.Y. 2011-12. The ld DCIT found that the assessee had paid commission to bank in F.Y. 2010-11 at Rs. 66,49,221/-. As per DCIT (TDS), it was a commission/charges paid to the bank for availing credit card facilities. He gave reasonable opportunity of being heard to the assessee which has availed by it. The ld DCIT (TDS) held that there was a relation between the assessee and the bank as principal and agent on following reasoning:-

a. Full legal and equitable title on the payment to be received against sales made by the assessee remains with him and at no stage passes to the bank.
b. The bank i.e. the agent cannot give any discount or alter in any way the nature of transaction or the sale price decided by the seller i.e. the assessee.
c. The bank is allowed to collect the payment only after authorization by the assessee on submission of the valid sales drafts to it.
d. If the cardholder disputes any card transactions or the payments are not made then the disputed amount of such card transactions are to be charged back from the merchant accounts or its reserve accounts maintained in the bank.
e. The bank provides the information of collection of the card transaction amounts on a regular basis to the merchant. All penalties, damages on the sale are to be borne by the merchant or principal.
f. The bank charges commission/fee for services rendered as described in the agreement/contract between the merchant i.e. the principal and bank i.e. the agent.”

As per DCIT (TDS), the assessee was liable to deduct tax. Accordingly, he calculated demand U/s 201(1) and interest U/s 201(1a) of the Income Tax Act, 1961 (in short the Act) at Rs. 8,84,144/- and 1,63,961/- respectively. Thus, total demand was credited at Rs. 10,48,105/-

3. Being aggrieved by the order of the learned Assessing Officer, the assessee carried the matter before the learned CIT(A), who had allowed the appeal by observing as under:-

“02.03 On due consideration of the order of the Hon’ble ITAT, Jaipur in the case of M/s Gems Paradise (supra), I hold that the issue is squarely covered in favour of the appellant. The findings of the Hon’ble Tribunal in para 27 of its order is reproduced here under:-

27. After considering the orders of the AO and ld. CIT (A), we find that assessee deserves to succeed in this regard. Section 194H is applicable where any commission has been paid by the Principal to the commission agent. This is not a case of commission agent as assessee sold its goods through credit card and on presentation of bill issued against credit card, the bank makes payment to the assessee after deducting agreed fees as per terms and conditions in case of credit card. This is not a commission payment but a fees deducted by the bank. If there is an agreement, that is agreement between the credit cardholder and the bank. Bank is a Principal and to spread over its business, a scheme is floated by bank i.e. issuance of credit cards. Bank issues credit card to the various customers who purchase the various credit cards on the agreed terms and conditions. One of the major condition is that if credit card holder does not make payment within the prescribed time limit then they charge 2% penal amount of bill which is raised by the shop keeper against sale of its items through credit card. Bank cannot refuse the payment to the shop keeper who sale their goods through credit card. Only in those cases where goods are found damaged and credit card holder inform the bank that the material purchased by them is damaged or defective and request the bank not to make the payment, in such cases only bank can withhold the payment, otherwise the bank has to make the payment to the shop keeper. Therefore, in our considered view, there is no such relation between the bank and the shop keeper which establishes the relationship of a Principal and Commission Agent. Technically it may be written that bank will charge certain percentage of commission but this is not a commission because assessee sells its goods against credit cards, and on presentation of bills, the bank has to make the payment. It is not the case that bank has advised the assessee to sell their goods to its customers then he will pay the commission. It is reversed in a situation as bank issued credit cards to the credit card holders on certain fees or whatever the case may be and the card holder purchases material from the market through his credit card without making any payment and that shop keeper presents the bill to the bank against whose credit card the goods were sold and on presentation of bill as stated above the bank makes the payment. Therefore, in our considered view, provisions of section 194H are not attracted in this type of transaction. Therefore, we hold that addition made and confirmed by ld. CIT (A) was not justified. Accordingly, the addition made and confirmed by ld. CIT (A) is deleted.

Similar decision were also rendered by the Hon’ble ITAT, Hyderabad in the case of M/s Vah Magna Retail Pvt. Ltd. (supra).

In view of the aforesaid decisions, the ground raised by the appellant is allowed. Appellant is not liable to make TDS U/s 194H on the credit card swap charges paid to the bankers. ITO TDS is directed to delete the demand raised U/s 201(1)/201(1A) in respect of aforesaid payments.

03. The appellant has raised several other grounds in respect of TDS liability on other payments. During the appeal proceedings, ld AR withdrew these grounds of appeal as “not pressed”. Accordingly, these grounds of appeal are treated as dismissed.”

4. Now the revenue is in appeal before us. The Ld. DR vehemently supported the order of the DCIT(TDS), Jaipur and argued that order may be confirmed. At the outset, the ld AR of the assessee has reiterated the arguments made before the ld CIT(A) and further submitted that this issue is covered by the various decisions of Hon’ble ITAT, therefore order of the ld CIT(A) may please be upheld.

5. We have heard the rival contentions of both the parties and perused the material available on the record. The case laws cited by the ld CIT(A) are squarely applicable on payment of swap charges made to bank and Section 194H is applicable on demand made by the principal to the commission agent. In assessee’s case, the assessee had sold the goods to the customer and payment received through credit care and swap charges at the time of crediting the sale amount in the account of the assessee and service charges were charges by the banks for providing the facility of credit card. The findings given by the ld CIT(A) are not controverted by the ld DR. Therefore, we uphold the order of the ld CIT(A).

6. In the result, the revenue’s appeal is dismissed.

Order pronounced in the open court on 16/12/2015.

Sd/-                              Sd/-
(Laliet Kumar) (T.R. Meena)